US association, Business Roundtable — an association of CEOs whose aim is the promotion of a thriving US economy and an expanded opportunity for all Americans through sound public policy — has released a revised statement on the purpose of the corporation, as part of its work to ensure more 'inclusive prosperity'.

Shift in approach

The statement commits the 181 signatory companies to not only serve their own 'corporate purpose' but to commit to delivering benefits to all stakeholders(customers, employees, suppliers, communities and shareholders).As such, the New York Times characterises it as 'an explicit rebuke of the notion that the role of the corporation is to maximize profits at all costs — the philosophy that has held sway on Wall Street and in the boardroom for 50 years'.

The group appear to take a similar view, noting that since 1978, they have periodically issued Principles of Corporate Governance which, since 1997 have endorsed principles of shareholder primacy ie that corporations exist principally to serve shareholders. The group writes that the new statement 'supersedes previous statements and outlines a modern standard for corporate responsibility'.

What's in the statement?

The statement commits signatory companies to not only serve their own 'corporate purpose' but to commit to the following:

• 'Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
• Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
• Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
• Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
• Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders'.

The statement concludes: 'Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country'

Signatories?

Among the signatories to the statement are the CEOs of a number of organisations including (among others): Amazon, Apple, Bank of America, Blackrock, BNY Mellon, BP, Chevron, Citigroup, Coco Cola, Deloitte, Exxon Mobil, Fedex, Fox, JP Morgan Chase & Co, Johnson & Johnson, KPMG, Pfzier, Procter & Gamble, PepsiCo, PWC, Vanguard and Xerox.

Why the shift in approach?

Commenting on the statement, Chairman and CEO of JPMorgan Chase & Co Jamie Dimon said 'The American dream is alive, but fraying.Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans'.

Chairman of the Board and Chief Executive Officer of Johnson & Johnson and Chair of the Business Roundtable Corporate Governance Committee Alex Gorsky said that the statement 'better reflects the way corporations can and should operate today…It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.

More detail to come?

The New York Times reports that the statement is a signal of companies' willingness to engage on issues of pay, diversity and environmental protection.Reportedly, several signatories said that the group would soon offer more detailed proposals on how corporations can live up to the ideals outlined, rather than focusing purely on economic policies.

Industry response

Some industry leaders have lent their support for the updated Business Roundtable Statement, citing the positive impact this commitment will have on long-term value creation.

• Tricia Griffith, President and CEO of Progressive Corporation said, 'CEOs work to generate profits and return value to shareholders, but the best-run companies do more. They put the customer first and invest in their employees and communities. In the end, it’s the most promising way to build long-term value.
• Darren Walker, President of the Ford Foundation said 'This is tremendous news because it is more critical than ever that businesses in the 21st century are focused on generating long-term value for all stakeholders and addressing the challenges we face, which will result in shared prosperity and sustainability for both business and society'.
• Bill McNabb, former CEO of Vanguard welcomed the statement saying that 'By taking a broader, more complete view of corporate purpose, boards can focus on creating long-term value, better serving everyone – investors, employees, communities, suppliers and customers'.

More like a mission statement than an action plan?

Media reports suggest that there is also some scepticism that it will change the way in which companies do business

The New York Times comments that the reads more like a 'mission statement' than a plan of action, given the lack of detail as to how the new commitments will be implemented.For example, it makes no mention of curbing executive compensation, an issue of key concern to investors given the highest paid 100 CEOs make 254 times the salary of an employee receiving the median pay at their company.The article quotes Presidential hopeful, Elizabeth Warren as saying that the announcement, though a welcome change, is 'meaningless' without 'real action'.'These big corporations can start following through on their words by paying workers more instead of spending billions on buybacks' she said.

The article goes on to suggest that in order for the companies in question to live up to their 'lofty promises' it will be necessary for a shift to take place in the way in which company success is measured by investors. 'Until investors start measuring companies by their social impact instead of their quarterly returns, systemic change may prove elusive'.Nancy Koehn, a historian at Harvard Business School is quoted by The New York Times as suggesting that the signatories to the statement 'perceive that business as usual is no longer acceptable. It’s an open question whether any of these companies will change the way they do business.' 

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